Ford Motor Co. wants to limit the risk related to its pension obligation and so it is now planning to provide lump-sum payouts as an option for future salaried retirees in the U.S. Ford talked about this plan during a recent investor presentation. This move is included in Ford’s efforts to resolve an issue that has damaged its market value and capability to attain an investment-grade credit rating.
Ford said that it was considering other options to "de-risk" its pension plans. Ford has announced that it will use up $3.5 billion cash for its plans and is currently shifting those assets more heavily toward bonds.
In a presentation to analysts, Ford Treasurer Neil Schloss said that there are presently no moves to “freeze or terminate” its plans at this time and the company is monitoring and assessing just how competitive its benefits are on a periodic basis. Last month, General Motors Co. disclosed a lump-sum payment option for its white-collar workers. It also revealed that it was shifting its veteran white-collar workers to 401(k) retirement plans to lessen future pension liabilities.
At the end of 2011, it was found out that Ford's global pension plans were underfunded by $15.4 billion. This shortfall, which increases or falls depending on asset returns and interest rates, is normally viewed as debt by investors. Schloss said that the volatility of the funded status “drives unpredictable variability in our profits, in our cash, and adds non-core financial risk.” Ford’s salaried employees in the U.S. add up to a total of around 25,000. Presently, Ford has about 195,000 hourly and salaried retirees and surviving spouses.